GEN Malaysia swings to 3Q loss on U.S. impairment

Genting Malaysia Bhd, operator of Malaysia’s only casino resort, swung to a third-quarter loss, compared to a profit a year earlier. Such loss was MYR1.49 billion (US$357.5 million) compared to a profit of nearly MYR193.8 million in the prior-year period.

The casino firm said that following a legal decision in the United States in September – within the reporting period and where it has a number of casino investments – it had an impairment loss of just over MYR1.83 billion on its investment in some promissory notes issued by the Mashpee Wampanoag tribe to finance the latter’s development of a gaming resort in Taunton, Massachusetts, in the United States.

The impairment was “due to the uncertainty of recovery of the notes following the U.S. federal government’s decision in September 2018 concluding that the tribe did not satisfy the conditions under the Indian Reorganisation Act that allow the Tribe to have the land in trust for an integrated gaming resort development.”

But Genting Malaysia added: “The group continues to work closely with the Tribe on options which include legislation being introduced in the U.S. Congress which, if passed, will entail the U.S. federal government reaffirming the land in trust for the benefit of the tribe.”

The impairment was booked to the first nine months of trading for the group.

Revenue for Genting Malaysia actually rose 14.5 percent year-on-year in the three months to September 30. Such revenue was nearly MYR2.60 billion in the third quarter 2018, versus nearly MYR2.27 billion a year earlier.

The company said adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) increased “significantly” by 86 percent year-on-year, to MYR814.8 million. The firm said its overall adjusted EBITDA was aided by higher foreign exchange gains on its U.S. dollar denominated assets

Third-quarter profit before impairment losses was MYR661.6 million, compared to MYR301 million a year earlier, said the firm.

Outside the reporting period, in November, the Malaysian government announced it was imposing a 10 percentage point increase respectively in gross gaming revenue tax for mass-market and VIP play at the Resorts World Genting property outside Kuala Lumpur.

Some 3Q upside

A Monday note from Japanese brokerage said that “among the positives” for the quarter was resort earnings ramp-up that was “better than expected,” with record Malaysia adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) of MYR640 million – up 20 percent quarter-on-quarter – with “stellar adjusted EBITDA margins of 38 percent,” and “operating cash flow of MYR900 million in the quarter alone”.

Nomura analysts Tushar Mohata and Alpa Aggarwal added: “We are pleased that management decided to prudently impair the Mashpee notes to clear a long- standing overhang – this is something we had called for after the gaming tax hike.”

The brokerage also gave some commentary on the legal tussle for Genting Malaysia regarding what was supposed to be a Fox-branded theme park at Resorts World Genting.

The institution said: “Management refused to comment on the status of the legal battle on the theme park or how long it will take to execute ‘Plan B’ – i.e., a theme park without Fox intellectual property.” Nomura added: “While we are disappointed with management’s communication, this was not entirely unexpected.”

Samuel Yin Shao Yang of Maybank Investment Bank Bhd said in a Sunday note his institution had reason to “laud” the fact third-quarter VIP GGR grew by double digits of percent year-on-year.

But he added: “It will be a while before investor confidence is restored.”

Fiscal year 2019 earnings were expected to fall 25 percent year-on-year due to factors including: the tax hike; loss of interest income relating to the U.S. promissory notes; and uncertainty over the outdoor theme park.

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